12/03/2009 @ 6:00PM

A Year-End Tax And Wealth Check-Up

The holidays are fast approaching, and with them the usual crush of shopping, travel, parties and other events. Before you get swept up in the spirit of the season, take some time for year-end wealth management planning. A quick review of four main areas that are central to your personal financial wellbeing will enable you to enjoy the holidays knowing not only that you’re on a path to achieving your financial goals but also that you’re prepared for the next, arguably less festive, time of year that’s also on its way: tax season.

Taxes

Year’s end is a good time for some basic blocking and tackling in terms of your taxes. Now is the time to:

–Collect the proper documentation for any out of the ordinary tax positions you have taken or plan to take that may require supporting documentation. (It’s always best to document these positions contemporaneously with the transaction, rather than trying to go back and recreate them months or years after the fact.)

–Determine whether or not you will be subject to the alternative minimum tax in 2009. If so, why? Consider the possible causes, including deductions for state income taxes, the exercise of incentive stock options and the type of tax-exempt bonds you own in your portfolio. Perhaps you can address the situation before it’s too late.

–Review any carryforwards you may have from 2008 that may impact your 2009 tax planning. For example, do you have long- or short-term capital losses that you couldn’t use up last year? Investment interest expense that was non-deductible in 2008? Charitable contribution carryforwards? Business net operating losses? Foreign tax credits? These must be considered when planning for your current-year taxes.

–For state tax planning (if you maintain a permanent place of abode in both your state of residence and your state of work), make sure you have adequate records of how many days you’ve spent in both your resident and non-resident states. Again, contemporaneous record-keeping will serve you best. (For more on the importance of record-keeping, see “Three Tax Mistakes You Make Every Day.”)

In addition, with changes in personal income tax law on the horizon, there are several longer-term questions you should ask yourself surrounding the acceleration or deferral of income and deductions. Should you accelerate deductions like real estate taxes, state income taxes and charitable contributions? Should you accelerate income from stock options or payments for services rendered as an independent contractor? Do you want to defer compensation from this year to future years? Year’s end is a good time to consider these questions in light of where you think the tax rates might be in 2010, 2011 and beyond.

Investments

Take some time to revisit how your portfolio is allocated. Reflect on whether you have specific objectives for your portfolio, and whether your asset allocations serve those objectives. For example, your weighting will be very different if you plan to retire in 20 years than if you plan to retire in five. Now is a good time to pause, consider your objectives and assess whether you’re on the right path to meet them.

At the same time, consider the fee structure of your portfolio. Do you have one level of fees, such as trading commissions, or more than one level? Do you pay money manager fees based on a percentage of assets under management? Are there additional fees related to the funds in which you invest? Understanding your fee structure enables you to better assess whether or not your investment portfolio is truly serving your goals.

Family

This time of year is often spent with family, which makes it a natural time to review how we plan our wealth in the context of our family needs. Think about whether you should be giving annual gifts to family members, and how to plan those gifts in relations to the annual gift tax exemption. (For more on annual gifting, see “Giving, The Tax-Free Way.”)

Think also about broader wealth-planning issues. If you have a significant estate and want to manage the impact of estate taxes, there are several transactions you’ll want to contemplate, such as the creation and funding of GRATs and other trusts. You’ll also want to review your estate liquidity to ensure there will be sufficient resources available to your family in the event of your passing, and whether you should consider additional life insurance in your planning. (See “Eight Steps To Protect Your Family.”)

Charity

Finally, the holidays are a time to think of others, and also a time when charitable organizations are more active in soliciting our support. Think about your personal charitable goals and how to address them. There are a number of charitable structures available to you, each of which comes with its own benefits and requirements. Consider all your options, including outright gifts, personal foundations, supporting organizations, charitable lead trusts and charitable remainder trusts. And remember, you can direct that your IRA go to a public charity during your life, if you’re over age 70 and a half and certain other requirements are met. For more tips on charitable giving, see “How To Be A Tax-Smart Charitable Giver.”

This content is provided by PWC for general guidance only and does not constitute the provision of legal advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.